Medical tourism — the phenomenon in which hospitals in emerging markets offer “sun, sand and surgery” at low prices to patients from North America and Europe — is gaining in popularity. While India lags behind countries like Thailand as a result of airport infrastructure and other bottlenecks, health care providers such as Apollo Hospitals are expanding at 10% a year. In an interview with India Knowledge@Wharton at the recent Wharton India Economic Forum in Philadelphia, Suneeta Reddy, Apollo’s executive director of finance, discussed the company’s opportunities and challenges in this fast-growing market. An edited transcript of the conversation follows:

Knowledge@Wharton: How has medical tourism grown over the years?

Reddy: It has grown…I wouldn’t say substantially, but it’s grown by 10%. Ten years ago, Apollo started focusing on patients outside India. It didn’t happen as a result of marketing; it was more of a pull of customers towards good quality medicine, rather than our pushing them through advertising and marketing. The reason it happened was that all over Southeast Asia, people began to see a value proposition — which was high value in terms of clinical outcomes and high-quality care — at one-fifth of what they would traditionally pay in the U.S., and probably a third of what they would pay in a country like Singapore. As a result, we started attracting patients from all over Southeast Asia.

As it progressed, people began to realize that the India story, where health care was concerned, was improving dramatically. Just two years ago, we got the JCI [Joint Commission International] accreditation which puts us on par with hospitals in the rest of the world. We are now shoulder to shoulder with the Mayo Clinic and the Cleveland Clinic. And with that we started getting patients from the West as well. Most of them use the Internet as the medium through which they schedule their appointments and arrange consultations with doctors. But again, it’s this value proposition that is really driving consumers. I would say that currently 10% of our total revenues come from medical tourism. That is not really a large amount, and it has grown by 2% to 3%.

There are obstacles in the way of what is happening. One is our airport facilities. If you look at the hospitals that are really doing well, they are connected to international airports that have around maybe 50 to 60 flights a day. Compare us with Thailand, which has 260 international flights flying into Bangkok every day — that makes it very easy for patients to go to Bangkok for medical tourism. If you compare that with the Chennai Airport, where our largest hospital is, there are about 15 flights. So, I think that you have to look at the airport infrastructure.

Secondly, the case mix of most of the work that comes to India is tertiary care and acute care. It’s not the plastic surgeries that you see in Bangkok. It’s high-end orthopedic work, it’s cardiology, and some of it is oncology. Patients come to us for really high-end work. To do that, because we are recognized for that sort of work, it is quite uncomfortable for patients to make this journey. We need to smoothen out that process — so that our patients don’t have to spend 12 to 14 hours in Immigration and Customs — and we are working on that. We now have people to facilitate and assist these patients as they come across.

Finally, I would like to say that there is a huge opportunity here. If you look at the U.S. alone, there are 40 million people in the country who are not insured. If you look at the U.K., there are about 250,000 Asians who are in the waiting line at NHS [National Health Service]. Medical tourism is a huge market. I believe the way to address it is to create a package that will enable these people to use Indian facilities. We tried talking to governments and asking, “Why don’t you send patients who have no treatment options to India?” Then again, we’ve spoken to benefits companies, etc. The only single hurdle facing the U.S. and foreign patients coming here is legal liability and the fact that they cannot address their concerns through a legal forum in the United States. They could, of course, use the Indian legal system, but it’s become a way of life; people want the legal system to back them up in case there is a problem.

Now, the incidence of problems is not even 0.01% so far, because the success rates are very good and clinical outcomes are so good — we are JCI accredited — and patients have the same rights in India as they would in the U.S., so they are protected. But I think that it’s just a hurdle that we need to overcome. Once we have done this, we will be tying up with insurance companies and benefits companies to see how we can assist people who need that type of health care.

Knowledge@Wharton: Have you seen a discernable increase in your Western clientele over the past few years? I know the story has been out for a while now. I was curious to know if you’ve seen an increase.

Reddy: Yes, we have. There has been a rise of about 5%.

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Knowledge@Wharton: What do you attribute that to, if it’s difficult to access these people through insurance programs or through the government? Is it direct advertising?

Reddy: It’s not advertising at all. It’s the fact that people are so confident that the clinical outcomes will be good. And it’s testimony from patients who have been through the whole process. As I said, it’s pullingpatients to the system. This is because we don’t market. I mean you don’t see advertisements. But, we are now working with CII, the Confederation of Indian Industry, which is doing the branding in India. There is a branding foundation in India, and they have a campaign called “Incredible India.” We work with them, and we are now doing a promotion around, “Experience Indian Health Care.” It was just launched and hopefully we will see a lot of results from that.

Knowledge@Wharton: Your program combines elements of both Western care and also Eastern medicine. I noticed that in a lot of your materials, you advertise the point that there are centuries of Eastern medical practice that you rely on as well. Can you talk specifically about what some of those elements are?

Reddy: We believe in an integrated health care package. In that sense, we talk about allopathic medicine for the actual treatment, in terms of surgery, diagnosis, etc., but where rehab and wellbeing are concerned, we’ve tried to integrate the systems of ayurveda [traditional Indian medicine] and yoga. This has helped because when patients go back [after their surgery] they need to readjust to a lifestyle that emphasizes continuous wellbeing. The key here is that there’s a lot of value that they will get from ayurveda and yoga.

Knowledge@Wharton: It is certainly a big market in the U.S., or at least a growing market, correct?

Reddy: It is. It’s strange, but when Patanjali introduced Yoga thousands of years ago, there were very few Indians practicing it. And now, 6% of the world practices yoga. It has become famous because the movie stars in the West and people all over America are doing it. Now it has come back to India, and people are now saying, “Okay, this should become a way of life.” Ayurveda is the science of life.

Knowledge@Wharton: You are one of the largest health care systems in India, correct?

Reddy: Yes, we are.

Knowledge@Wharton: How are you reaching out to poorer populations? Can you tell us a little bit about SACH and maybe some of your other community initiatives as well? The acronym stands for: Save a Child’s Heart.

Reddy: I will start with SACH. SACH is Save a Child’s Heart; it also means “the truth” in Hindi. The reason we started SACH is that we came across so many children who had heart disease. We believe that if there is an intervention at that stage, when the child is young, it will given them a more productive future. So, we said let’s do something for children and make them productive adults, because that is what India really needs.

We started this foundation where the hospital does everything free of cost. The money for the consumables comes from donations, and people have donated in a large way. So far, we have completed 500 free surgeries and our target [this year] is to do 1,000. We would like to do 1,000 surgeries a year. The surgeon does not charge and the hospital does not charge. It’s just 50,000 rupees for the consumables which comes as a donation. People have found it to be not so difficult to give a check for 50,000 rupees [$1,170] — especially when you know that you are saving a child’s life and you’re assuring him or her of a good future.

The second thing we do is outreach at the village level, where health care is not available. We wanted to create a sustainable model and not really do it as charity, but to create something that was sustainable for the future. In fact, Bill Clinton, when he was the U.S. President, inaugurated this initiative in a village called Aragonda, a small town in the Chittoor district of Andhra Pradesh. We set up a small hospital, which was a primary care facility. We connected it through tele-medicine to our tertiary care facility.

Then we created an insurance product which was 1 rupee (0.02 cents) a day, which allowed people access into the primary care facility. If they fell ill, they would be treated here. They wouldn’t have to pay anything, except for the 1 rupee a day or 325 rupees a year [$7.60 a year]. And, if they needed some tertiary care work, they would be connected by telemedicine to our specialists in the main hospital. They would only have to travel to the city when they needed acute care. I think that is an excellent model. Currently, we have 64 telemedicine centers that connect us to many centers in India. We are going to work on this model and set up more primary care initiatives.

The third activity we do is to organize medical camps. We go into the villages and screen people for cancer. You know, India is the only country where cervical cancer still exists. The numbers are growing exponentially, and we believe that early intervention and screening is one of the ways to check the growth and mortality from cancer. There are many camps that we do work with from each of our hospitals that have to do with cancer screening.

The fourth activity has to do with wellness, because preventive health care is a big aspect of health care. It will be a $1 trillion industry in the next five years. Without looking at it from an industrial viewpoint, health care education is important; Apollo tries to do that through its preventive health care schemes and our outreach programs, where we do these check-ups in villages.

Knowledge@Wharton: What would you identify as the biggest challenges facing the industry?

Reddy: I think there are two challenges; the main one is skilled manpower. The fact that the government has not allowed the corporatization of colleges means that they still function at a trust level. This means that people pay capitation fees, and the number of seats is limited by state governments. Health is a state subject, so there is a dichotomy there; I believe there should be a Central government policy on health care. It’s not a fundamental right that people get health care; in each state there is a separate policy.

The need for health care education is tremendous. First, people should learn about health care, and second, we need to get skilled manpower. That is a huge challenge because our nurses and doctors are migrating to the U.S.; in the past, they went to the U.K. The U.S. has at least 40,000 doctors who were trained in India at subsidized rates. These hospitals are run by trusts, so the doctors really don’t pay that much for their education and training. But we need to double the capacity in terms of training colleges. This is because if you are going to create the 80,000 beds that are required for us to meet the World Health Organization’s norms, then we need to staff those 80,000 beds.

Yet another challenge has to do with the high cost of real estate — to set up a hospital, you need real estate, you need land. Property prices have almost doubled. Traditionally real estate was 40% of project cost and now it has increased to 65%. We may need to set up a health care real estate investment trust (REIT)like you have in the U.S. to overcome this hurdle.